CERC Dismisses Azure Solar’s Claim for GST Compensation on O&M Expenses

The Central Electricity Regulatory Commission (CERC) has dismissed the petitions filed by Azure Power against the National Thermal Power Corporation (NTPC) and Solar Energy Corporation of India Ltd. (SECI) requesting it to consider reimbursement of the incremental cost of project construction and O&M due to the introduction of GST Laws and the claim of carrying cost for delay in reimbursement.

The petitioners (Azure Solar, Azure Sunshine, Azure Green, Azure Clean Energy, and Azure Power Mars), the special purpose vehicles of Azure Power, were selected as the successful bidders under the National Solar Mission implemented by the NTPC and SECI.

The petitioners had entered into separate power purchase agreements (PPAs) for 140 MW capacity with NTPC and SECI. The projects are located in the state of Rajasthan.

On July 1, 2017, the Central Goods and Services Tax (CGST) Act, 2017, and the Integrated Goods and Services Tax (IGST) Act, 2017, were introduced by the central government. Meanwhile, the Rajasthan Goods and Services Tax Act, 2017, was also introduced for the collection of tax on intra-state supply of goods or services.



Given this background, Azure Power has said that the introduction of GST Law after the execution of PPAs and has resulted in additional recurring and non-recurring expenditure due to which it has approached the Central Commission to claim relief.

Azure Power has also claimed that with the introduction of GST Laws, a tax slab of 5% to 28% had been introduced on goods and services required for execution, construction, and operation of solar projects. The new tax slabs led to an increase in the recurring and non-recurring O&M expenditure hence making the tariff quoted at the time of bid unviable.

Further, Azure has also asked to be compensated with the amount of the financial cost of the additional expenditure incurred as a result of the GST introduction by paying them carrying cost.

Addressing the first issue, the commission observed that the GST laws came into effect on July 1, 2017, and the PPAs executed by the parties is dated February 5, 2015, or before. Further, the scheduled date of commissioning (SCoD) of the projects was also dated November 5, 2015, or before. Therefore, all the projects were scheduled to be commissioned before the date of GST enactment, and there was no impact of GST laws on the construction stage of the projects in question.

Addressing the second issue, the commission observed that the GST, in this case, was applicable only because of the outsourcing of the operation and maintenance (O&M) services to a third party. The outsourcing of the O&M  services is purely a commercial decision taken by the petitioners. Therefore, the claim of the petitioners on account of the additional tax burden on O&M expenses cannot be considered.

On the third issue, the Commission observed that the PPAs do not have a provision of compensating claims regarding carrying cost as these PPAs were signed before the introduction of the GST, and hence this claim cannot be allowed.

Earlier this year, Azure Power’s petition to Maharashtra Electricity Regulatory Commission (MERC), requesting to order Maharashtra State Power Generation Company (MSPGCL or MAHAGENCO) to compensate the company for the excess cost incurred due to GST was also dismissed by the commission as premature.

Previously, the Maharashtra commission had dismissed another petition moved by Azure Power requesting it to order MSPGCL  to compensate the company for the excess cost incurred due to GST.